Source: Wall Street Journal, Chinese Edition

 

On 28^th January, 2012, anti-government military force in Sudan kidnapped 29 Chinese workers engaging in infrastructure construction in South Kurdufan of Sudan. Only two days later, another 25 Chinese citizens were kidnapped by the Bedouins in Egypt. Though the hostages in the two snatches are set free now, two consecutive events have aroused Chinese people's concerns about the conditions of Chinese enterprises in Africa.

Statistics from the Ministry of Commerce show that in the first three quarters of 2011, the volume of trade between China and Africa reached $122.2 billion, an increase of 30% over the previous year, approaching that of the whole year of 2010. Shen Danyang, spokesman of the Ministry of Commerce predicted at a regular press conference that China-Africa trade volume of 2011 would reach a record high.

Meanwhile, China's investment in Africa is keeping a dramatic growth. By the end of 2010, China's direct investment in Africa reached $13 billion, with more than 2000 Chinese enterprises having made investment in Africa. In the first three quarters of 2011, China's direct investment in Africa was $1.08 billion, an increase of 87% year-on-year. It is estimated that the number of Chinese citizens engaging in business or labor activities in African countries exceeds 1 million.

With a population of 1 billion, Africa has a huge potential market with great opportunities for development. However, criticism and doubts on China's investment in Africa occur from time to time along with the fast-growing volume of trade and investment. The Chinese enterprises in Africa are faced with more and more critical opinions from the local and international communities, especially in labor relations, laws and regulations as well as environmental impact.

The Chinese enterprises have always faced numerous challenges since their arrival in Africa. Even for the established Chinese enterprises that have been operating in Africa for years, they are still perplexed by the diverse cultures and varying social environments.

Labor conflict is the commonest challenge faced by the Chinese enterprises in Africa, often worsened by the poor communication between the Chinese enterprises and local community and workers.
The 2010 Zambia mine shooting is an extreme case of the issue.

Meanwhile, the unstable political and social environment in many African countries presents great uncertainties to Chinese enterprises in Africa.

At the end of 2011, Mr Zhong Jianhua, Chinese ambassador to South Africa, received a special interview by a reporter of China Reform of Caixin Media. Mr Zhong emphasized as China's investment endeavor in Africa is still in the primary stage, we need to understand different cultures from different perspectives.

 

China Reform: Could you tell me the current investment conditions for Chinese enterprises in South Africa?

Zhong Jianhua: Currently, Chinese enterprises have made various kinds of investments in South Africa, including financial investment ( For example, Industrial and Commercial Bank of China has invested more than $5 million in purchasing 25% shares of Standard Bank of South Africa.) and investments in resources and manufacturing industries. Generally speaking, China's investment in South Africa maintains great momentum. According to the McKinsey Report, the annual return on investment (ROI) in China is around 3% to 4%, whilst on African continent 20% and in South Africa 19%. The high ROI surely attracts lots of firms to make investments in Africa. What is more, China is now faced with the need of industrial upgrading with some of the industries need to be transferred to elsewhere.

 

China Reform: In term of China's industrial transfer, what do you think the special characteristics of the African market compared with the markets in South East Asia and Latin America are?

Zhong Jianhua: Africa is home to more than 1 billion people, and its market is of great potential. Compared with South East Asia and Latin America, Africa has huge potential demand due to its large population and development potentials. With a much lower starting point, Africa has greater potential for development. For example, in Latin America, GDP per capita has reached $6000 –7000, and that in South East Asia is even higher, which means it is difficult for them to grow fast, while for Africa, it will have greater opportunities for development in the process for its GDP per capita to grow from $300 to $3000.

The importance of South Africa to the African continent is equivalent to that of Hong Kong to China's mainland prior to the Reform and Opening-up. South Africa has a mature commercial market mechanism, banking system and legal system, relatively stable political situation and advanced communications and transportation. In addition, South Africa boasts numerous experts specializing in African affairs, and it has already made lots of investments in Africa. It is wise for a company to start its business in South Africa, and then make further expansion to other African countries. Many Chinese enterprises used to settle down in other African countries rather than in South Africa, such as Congo and Angola, but now they would prefer to establish their headquarters in South Africa and make further expansion to other African countries. This is a change from short-term planning to long-term strategy.

China Reform: In general, do you think that Chinese enterprises'investment in South Africa is in a mature or still in primary stage?

Zhong Jianhua: Different industries are in different situations. The Chinese companies that started their businesses in South Africa in the early stage, for example, Hisense and Sinosteel, have become quite mature with sound social relationship and good operating environment. The Industrial and Commercial Bank of China has laid a solid foundation after several years'development, and has started to penetrate into other African countries and other fields through Standard Bank's network in Africa. Huawei and ZTE's operations have also entered a relatively stable stage. However, some Chinese enterprises that have just started their business in South Africa have not developed smoothly, because the environment here is quite different from that in China. Generally speaking, in term of business development, if western nations get 100 scores, then China can only get an average of 20 – 25 scores. There is still a great gap in this regard between China and western countries.

 

China Reform: What do you think the Chinese enterprises doing business in Africa need to improve? Before going to Africa, what do they need to know most?

Zhong Jianhua: If we may say that the Western firms engage in Africa on a scale of regular armed forces, the Chinese enterprises, even for some large state-owned corporations, are still in a stage of "guerrilla warfare"For example, in case of a mine of the value of $1billion awaiting for development, a western enterprise would first invest $20 million to mobilize the necessary personnel, make investigation on the geology, technology, financing, legal protection, and local customs to make detailed plans for the operation, government contact establishment, communications with the local population, and legal issues. An action plan as long as 30 years could be drawn up so. However, a Chinese enterprise usually does it in a completely different way with three businessmen, two of whom may not even being able to speak English, putting down a sack of cash on the table, thinking the deal is done. A western enterprise may spend $20 million on the feasible study, without thinking whether it will pay or not, while a Chinese businessperson could think putting $300,000 into such an investment is way too much. Some Chinese entrepreneurs even believe that if they could make a good deal with a certain government official in South Africa, everything would be fine.
The difference lies in the gap between corporate cultures and degrees of opening to the outside world. Multinational companies have been operating throughout the world for many years with rich experiences, while Chinese firms would tend to follow domestic practices when doing business abroad. There is a long way to go for Chinese enterprises doing business abroad. They need to learn a lot, and it's likely for them to encounter difficulties and setbacks. In the process of going global, the Chinese enterprises are not only looking for new living space, but also for enhancement of their internationalization, industrialization and regularization.
In the learning process, over politicalization is unnecessary. A business is about business and profit. Although a business may have some political background, politicalization cannot be the dominating factor for its development. An firm should build itself into an economic animal, with good senses, a sound body and brain.

What I am most concerned about now is that we don't have adequate fundamental studies on Africa. Since our Reform and Opening-up, our studies have focused on regions which are either appealing or presenting potential threats to us. For a very long time, we have focused our studies on the developed countries, when Africa studies were put on hold for sometime. Generally speaking, our studies on Africa are quite inadequate in terms of quantity, depth and national investment.

China Reform: How is the current competition between Chinese enterprises and European and American enterprises on Africa market?

Zhong Jianhua: Though European and American enterprises can no longer monopolize the Africa market now, they used to be the dominating force. For example, South Africa has the world's 60% of platinum reserves and 80% of platinum output, but platinum market is located in and the market price manipulated by London. Here is another example. Though Zambia used to make substantial investments in copper mining, it has suffered huge losses because copper price is manipulated to be extremely low.
Now, as China, a big consumer, emerges, our way of cooperation is to promise that we will buy a certain quantity of things in a certain number of years and such a huge demand lowers the investment risks. Although western countries are able to manipulate the price, no one can stop China from doing business in Africa. China brings hope to Africa because it has a great potential demand, and Africa itself will also have great potential demand in the future. That cannot be manipulated by the West, and that is the reason why western countries feel threatened by China's entry into Africa. The West's manipulation of Africa is broken up by the irresistible market demand rather than any political reason.

 

China Reform: What are the advantages and disadvantages of China's entry into the African market?
Zhong Jianhua: China has lots of advantages, such as a huge market, sufficient fund, rich experiences in development, as well as invaluable entrepreneurship. However, China has some obvious disadvantages too. For example, its knowledge about the international rules is inadequate and understanding of Africa far from enough.

China Reform: Some entrepreneurs believe that the Chinese corporations doing business abroad are in need of national level coordination. What do you think of such a demand? How should Chinese enterprises cope with political uncertainties abroad?
Zhong Jianhua: Though China is an officialdom-led society for a long time, a national-level synergy is not feasible in Africa, or we could return to the old track of colonialism.
In terms of political uncertainties, all enterprises are faced with the same situation. It is the host country that makes the rules and regulations–high risks, high returns. As we are in the same environment, why should Chinese enterprises rely on government relations?
We should never underestimate two things: the market and the wisdom of the local people. Any country has both good companies and bad companies that will all experience the process of "survival of the fittest". The key point is that our officials should not give protection to bad enterprises.

Culture difference has nothing to do with morality

China Reform: Some people in the international community are critical towards China's investment in Africa. For example, some people accuse Chinese enterprises of worsening Africa corruption, while others think the Chinese enterprises are wrongly accused. What do you think of the issue?

Zhong Jianhua: There are all kinds of critical voices in the international community. Some criticism is made due to competition, and others given because the Chinese enterprises are not doing very well. About the latter, there are several reasons. One could be that the Chinese firms have inadequate understanding of Africa, the other could be they took some bad domestic practice aboard. For example, some firms treat the local staff in the way that they treat migrant workers from rural areas to cities in China. It is not only an economic issue, but a complex cultural one. Therefore, if some Chinese enterprises are criticized for their poor or inadequate knowledge of Africa, improvement can be made; but if they are criticized for more in-depth reasons, they can only change their behaviour when China's corporate culture changes.

As for corruption, western enterprises are also faced with such a problem. What should Chinese enterprises do in a country with corruption? Western enterprises are not exempt from bribery. Should there be a specific accusation against a given Chinese enterprise of doing something illegal, please tell me so I can make an investigation. Making a generalized accusation is pointless, as it could only be interpreted as moral prejudice.

The western countries have been participating in the development of the African Continent for several hundred years. Now, as a new comer, China is inevitably faced with some criticism, and it is difficult to change the attitudes of the others. However, it must be acknowledged that with the emergence of the global macro-market, China's entry into Africa is unavoidable. Admittedly, when China sells something, the price would dip, and when China buys something, the price soar, with both Africa and western countries benefiting a lot, however. Currently, a barrel of oil is more than $100. If China withdraws from the African market, could you image how much the oil price will drop? As raw material exporters, African countries do make profits, and cheap Chinese commodities do help solve the livelihood of the lower class, letting many of them have a decent life.

 

China Reform: Generally speaking, what is African people's attitude towards Chinese investment? What about African countries'policies on foreign investment?
Zhong Jianhua: Any society is comprised of different classes. For example, in China, people have different views on the same thing. It is the same in Africa. Therefore, we cannot take one certain view as the point of view of a whole country or of all the people in that country. Certainly, when an enterprise engages in business in a region, it should pay attention to the reaction and attitude of the local people. However, I am not in favour of treating Africa in an abstract or generalized way.

The Colonial Period left many problems in Africa. For example, many borderlines were set by colonialists who merely drew up a line on a map. The African Continent became disintegrated in terms of economic development. According to the statistics of the African Union, at present, the internal trade on the African Continent only accounts for 11% of its total foreign trade. Africa is in urgent need of developing internal trade, and it is what China is helping Africa to do now.

Africa is now in an exploring process. So far, Africa has yet to find a path that suits its development; as a result, it has high unemployment rate and crime rate. Africa is abundant with resources but does not know how to make use of them. What is more, Africa does not allocate its current wealth equally. Though independence movement has set Africa politically free, Africa is entering a stage of needing to find a development path now. China is willing to offer its help in this process by sharing its past experiences and lessons with Africa with the wish that Africa is able to secure a path that suits its development.

China Reform: Culture difference is a challenge faced by many Chinese enterprises abroad. What do you think of the cultural difference between China and Africa?

Zhong Jianhua: Africa and China have completely different cultures. Historically speaking, Africa has a comfortable natural environment with few disasters, so the African people do not have a sense of uncertainty or insecurity for their future, and seldom have a money-saving habit. That is quite different from the Chinese people's common practice. Most Africans believe that one should only work when has to; and one should stop working when he or she has enough money to meet the basic needs. One must understand the cultural difference. It has nothing to do with morality, as it is just a matter of how to survive. It's hard for us to change them, and it must be that they will change us. We must not make cultural or moral judgment on the others, but we can get used to them and help them find a suitable way of development.